‘Epic’ impact of Google’s downtown San Jose plans

Mike Kim grew up in San Jose and can deftly describe the transformation of the city’s downtown — its gradual, and at times painful, progress toward becoming an urban destination.

Planners and developers have been waiting for the day when there are enough feet in the street to create a big city vibe in the downtown core.

That day may be upon us now that plans are on the table to remake downtown San Jose into a massive, transit-centered Google village with up to 20,000 new jobs. Separately, Adobe Systems has announced its own expansion plans to bring 3,000 more workers downtown.

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We turned to Kim to discuss the “sheer magnitude,” as he put it, of these proposed efforts.

As chief investment officer for Simeon Properties, Kim has skin in the game. Simeon developed the 21-story Centerra luxury apartment complex, which opened downtown last year. It plans to break ground by next spring on its 20-story Post Street Tower, bringing more luxury apartments to downtown. And Simeon continues to assess other development possibilities as Google advances with its plans.

Those plans “will forever change the trajectory of the city,” Kim said.

Q: What’s your take on the Google proposal and its impact down the line?

A: It’s very difficult to wrap your head around the fact that in downtown San Jose — where the existing office stock is about 5 million square feet — Google is now proposing to build an additional 7 million to 8 million square feet. It is a game changer of epic proportions.

In real estate, the market makers are governments, capital markets and major employers. Employers such as Google make market opportunity because the instant they arrive and hire, that creates demand, and suddenly you’ve got to have real estate to live, work and play in. Look at the transformation in the Mid-Market district in San Francisco when Twitter moved in, or the Uber news in Oakland — and that’s only a fraction of what Google is proposing in San Jose. This Google news in San Jose is so big that it eclipses even the Adobe news, which is enormous — the addition of 717,000 square feet and 3,000 employees.

Mike Kim meets with business manager Hope Reed at Centerra, a luxury apartment complex developed by Simeon Properties in downtown San Jose. (Patrick Tehan/Bay Area News Group)

Q: What else do you see coming?

A: The strongest drivers of real estate are jobs and wage growth. Google is coming, Adobe is expanding, Apple is coming to north San Jose, Amazon is arriving – so locally, you have a pretty robust growth in jobs and income. This soon-to-arrive worker base — these are the same workers who created the massive housing shortage in SOMA (in San Francisco) and drove up rents and prices there. The same thing is going to happen in San Jose, but the impact will be more dramatic. Because in SOMA, it was already a fully built environment; it’s not like you could drop in 10 million square feet. But in San Jose, it can accommodate millions of square feet of new product, so the effect is going to be tremendous. And that same demographic that drove up prices across the board in San Francisco, whether in office, rent or retail, is going to do it again in San Jose.

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Q: How quickly do all these changes happen?

A: If you drop 5,000 new workers who are well paid onto downtown San Jose, that creates instant demand for housing, office space and retail. But new real estate lags behind the hiring pace, because the development process is a lengthy and cumbersome process. So until supply can come online, the demand’s going to be ramrod straight, and there’s going to be very little to satisfy that demand. Which results in a rapid rise in prices in rent in the existing stock until the supply can catch up with the demand.

Q: I’m not hearing much about addressing the issue of affordability.

A: One of the best ways to mitigate the affordability issue is to have a robust housing supply across the income spectrum. Unfortunately the general plans for Silicon Valley cities are really job-centric, not housing-centric. Everybody’s still looking to have more jobs in their communities than housing; nobody wants to be the bedroom community for Mountain View or Palo Alto.

Q: Cities don’t necessarily want a lot more housing, because it strains services.

A: You have to pay for parks, schools. That’s the conundrum and the difficulty of this debate. The burden on the city’s general fund to service more residents is a challenge.

Q: But again, what’s the solution for “regular people” who already can’t afford to live in San Jose and the region, generally?

A: One of the reasons gentrification happens is because people who can afford to pay more don’t have any places to go, so they push out people in older neighborhoods. So the entire housing spectrum needs to be filled, but if you don’t supply for the people at the upper income, they’re inevitably going to push out people at the next tier down, and in turn they push out the following tier and so on.

Q: I’m not seeing much “mitigation” of the problem here. There are so many jobs being created at the top of the food chain.

A: Yes, where we are in the market cycle, excess demand is being created through the hiring by these large companies, and the supply is lagging. That’s true, but there will be a down cycle where the demand drivers — new jobs — will subside. And that will afford some price relief.

5 Facts About Mike Kim

1. His first job was as a newspaper delivery boy for the San Jose Mercury News: “Old-school style, on a bike at the crack of dawn. At the peak of my game, I could fling the Sunday paper from the opposite side of the street and land it center on a tiny porch.”

2. While in the U.S. Navy, he “visited over 30 countries across five continents, captured pirates on the high seas, swam across the equator, scuba-dived all the major oceans and seas of the world, almost crashed into an iceberg in the North Atlantic, and logged enough nautical miles at sea to circumnavigate the globe four times.”

3. Best way to relax and recharge: “Sailing alone on the San Francisco Bay, one of the most scenic and challenging sailing conditions anywhere in the world.”

4. Personal hero: His wife Sara, who “does the lion’s share of the work in raising our seven kids, runs the family ranch in Lafayette, and founded a thriving co-op school.”

5. Favorite colors: Black, “because it comprises and absorbs all colors,” and green, “because there are near infinite shades of green observable in nature.”